Beta
Measures how sensitive a fund's returns are to benchmark movements — a β > 1 amplifies market swings, β < 1 dampens them.
Beta tells you how much a fund moves when its benchmark moves. A fund with β = 1.2 is expected to rise 12% when the market rises 10%, and fall 12% when the market falls 10%. It is a measure of systematic risk — the portion of a fund's behaviour explained by market movements, which cannot be diversified away.
What it measures
Beta quantifies the linear relationship between the fund's return and its benchmark's return over a historical window. It is not a measure of total volatility (that is volatility) but of co-movement with the market specifically. A high-beta fund amplifies market cycles; a low-beta fund is more insulated from them.
How it is computed
Beta is the slope coefficient from an OLS regression of monthly fund excess returns on monthly benchmark excess returns:
(R_p − R_f) = α + β × (R_b − R_f) + ε
In practice:
β = Cov(R_p, R_b) / Var(R_b)
MintByte uses 36 months of monthly returns for this regression. The benchmark is the category benchmark assigned by SEBI (Nifty 50 for large-cap, Nifty Midcap 150 for mid-cap, Nifty Smallcap 250 for small-cap, etc.).
Example: Over 36 months, a mid-cap fund shows Cov(fund, Nifty Midcap 150) = 0.0042 and Var(Nifty Midcap 150) = 0.0038. Beta = 0.0042 / 0.0038 = 1.11.
This fund amplifies mid-cap market moves by about 11% on both the upside and downside.
How to interpret
| Beta value | Interpretation |
|---|---|
| β = 1.0 | Moves in lockstep with benchmark |
| β > 1.0 | Amplified — more volatile than market |
| β < 1.0 | Dampened — less sensitive to market swings |
| β ≈ 0 | Very low correlation with the benchmark |
| β < 0 | Moves inversely to benchmark (extremely rare in equity MFs) |
Indian large-cap funds cluster between 0.85 and 1.05. Mid-cap funds typically range 1.0–1.2. Small-cap funds can exceed 1.3 in high-momentum periods.
A fund with β > 1 is not inherently bad; if alpha is also positive, the extra market risk is delivering extra return.
Limitations + caveats
Beta is computed against the category benchmark, not a global market index. A large-cap India fund's beta against Nifty 50 says nothing about its exposure to global risk factors. Beta is also unstable over time — a fund's beta measured in a bear market can differ substantially from its bull-market beta. The 36-month window smooths this somewhat but doesn't eliminate it.
Related metrics
- Alpha — excess return above what beta predicts; the active management layer on top of beta.
- Capture Ratios — practical expression of beta as separate up-market and down-market coefficients.
- Volatility — total return dispersion; includes both systematic (beta-driven) and idiosyncratic risk.
Sources
Monthly NAV and benchmark returns: AdvisorKhoj API. OLS regression computed monthly over trailing 36 months. SEBI category benchmarks; mapping table maintained in the MintByte scheme master.